Someone told you your business would be valued based on your EBITDA margin, and now you're trying to figure out what that means and whether yours is any good. You're not alone. Most business owners hear the term for the first time when they start thinking about selling — and it's one of the first numbers a buyer will ask about.
Here's what EBITDA actually is, how to figure out yours, and what a good EBITDA margin looks like across different industries.
What Is EBITDA and Why Does It Matter?
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. In plain terms, it's the amount of cash your business generates from its core operations — before the accountants and the IRS get involved.
Buyers care about EBITDA because it strips away the noise. Your tax strategy, how you financed your equipment, and how your accountant handles depreciation are all choices that affect your bottom line on paper but don't reflect how the business actually performs day to day. EBITDA gives buyers a cleaner look at what the business really earns.
When someone says a business sold for "4x EBITDA," they mean the purchase price was four times that annual earnings number. That's why understanding yours matters — it's the foundation of how your business gets valued.
How to Calculate EBITDA for a Small Business
The basic math is straightforward. Start with your net income — the bottom line on your profit and loss statement. Then add back four things: interest payments on any debt, income taxes, depreciation, and amortization.
For most small businesses, the calculation gets more interesting from there. Buyers will also look at what are called "owner add-backs." These are expenses that show up in your financials but wouldn't exist under a new owner. Common examples: your salary above what a market-rate replacement would cost, your spouse's salary if they're on payroll but not fully working in the business, your truck payment, your health insurance, or that family cell phone plan running through the company.
How to calculate EBITDA for a small business properly means being honest about these add-backs. Every owner runs some personal expenses through the business — that's not a problem. But when it's time to sell, you need to separate what the business actually costs to operate from what you've been pulling out of it. A good accountant or financial advisor can help you build a clean adjusted EBITDA that tells the real story.
What Is a Good EBITDA Margin by Industry?
Your EBITDA margin is your EBITDA divided by your total revenue, expressed as a percentage. It tells you how much of every dollar in revenue turns into actual operating cash flow.
Here are some general ranges for the industries we work in most:
Home services (HVAC, plumbing, electrical): 15–25% EBITDA margins are typical for well-run companies. Businesses on the higher end usually have a strong mix of service and maintenance contract revenue — not just project-based work. HVAC companies with recurring service agreements often stand out here. That predictable revenue stream is a major reason the EBITDA multiple for an HVAC company tends to sit at the higher end of the range for home services.
Manufacturing: 10–20% is a common range, though it varies significantly by sub-industry. Businesses with proprietary products or specialized capabilities tend to run higher margins than contract manufacturers competing primarily on price.
Trades and industrial services: 12–22%, depending on the specialty, labor market, and how efficiently the business runs its crews and routes.
These are approximate benchmarks — not targets. Your specific margin depends on your market, your cost structure, your pricing, and a dozen other factors. The point isn't to hit an exact number. It's to know where you stand relative to businesses similar to yours.
Why Margin Alone Doesn't Tell the Whole Story
Here's where a lot of owners get tripped up. A strong margin is good. But it's not the only thing a buyer evaluates.
Consider two businesses. One runs a 25% EBITDA margin but does $2 million in revenue — that's $500,000 in EBITDA. The other runs a 15% margin but does $14 million in revenue — that's $2.1 million in EBITDA. The second business will almost certainly command a higher valuation, and likely a higher multiple, despite the lower margin.
Buyers look at the full picture: absolute EBITDA (the dollar amount, not just the percentage), revenue growth trend over the past three years, customer concentration (are you too dependent on one or two big accounts?), and how much risk comes with the business. A company with a good margin but flat revenue and a single customer generating 40% of sales is a different proposition than a lower-margin company with diversified customers and steady growth.
If you've been building your business the right way — growing revenue, keeping customers, reinvesting in your team — that shows up in the numbers. Margin is one piece. The story behind the margin is what actually drives value.
Understanding your numbers is one of the earliest steps in the selling process. It's also one of the most empowering. Once you know your EBITDA and how it compares, you're no longer guessing what your business might be worth — you're starting from a position of knowledge.
If you want to understand where your business falls and what it might be worth, that starts with a real conversation about your specific numbers — not benchmarks from a blog post. We're happy to walk through it with you. Get in touch whenever you're ready.